Unlocking the benefits of SME governance

Corporate governance practices are important for the survival, success and growth of businesses. However, implementing these practices effectively can be difficult and frustrating for small businesses, especially when they end up as a box ticking exercise without delivering the desired results. In addition, governance requirements such as setting up functional boards, managing risk and engaging […]

Corporate governance practices are important for the survival, success and growth of businesses. However, implementing these practices effectively can be difficult and frustrating for small businesses, especially when they end up as a box ticking exercise without delivering the desired results.

In addition, governance requirements such as setting up functional boards, managing risk and engaging stakeholders can be expensive and time-consuming for a business struggling with day-to-day concerns.

The good news is that small businesses can implement sound governance practices suited for their growth levels and peculiar business needs. Here are a few guidelines for implementing a governance system that works:

1. Commit to good governance

Human nature is favourably disposed to taking the path of least resistance- we are prone to choosing the easiest way over the best way. Unfortunately, strong companies are not built by convenience. The founders must therefore set the right tone by resolving to pursue the best governance practices. This resolve must be clearly documented, communicated across the business and reflected in the decision making process. Of course, there will be mistakes along the way, but commitment does not mean perfection. It however means that errors will be rectified quickly to set the company back on the course of good governance.

2. Do not expect excitement, create it

It is incorrect to assume that the process of achieving something meaningful will always be an exciting one. On the contrary, actions that give the immediate reward of excitement often have adverse long term consequences. Sticking to a process of transparent decision making, strategic risk management and accountability will not be exciting. Sometimes it will seem slow and unnecessary- these are the times it is most needed. Begin the journey to governance with this realisation, and create points of encouragement along the way. For instance, create a clear picture of the desired state of your business, and elaborately celebrate every sound governance decision that takes you closer to the goal.

Read Also: Large and small businesses: What works in a crisis or pandemic?

3. Start small

Corporate governance can seem overwhelming for a small business when viewed under the erroneous assumption that it is required to set up the same structures as a public company. In reality, entrepreneurs need to adopt a principle based approach that is suited for their company needs, with the understanding that the structure will evolve as the business grows. For example, an SME can demonstrate its commitment to setting up a strong control environment by keeping adequate records of its transactions, separating business expenses from personal expenses and having its financials audited.

4. Set your priorities

The process of strategic planning for an SME should incorporate corporate governance as a vital element, and not as an afterthought. The long term benefits of governance for the business make it a necessary part of strategic decision making. Ethical profit making, sustainable business operations and a balance of the interest of stakeholders as priorities will naturally require strong governance practices to achieve them.

5. Monitor the process-

The governance process is a long term commitment that is required through the lifetime of the business. The absence of constant monitoring will lead to a documented expectation that is forgotten in a file somewhere, or a mere process driven without the principles. An honest, planned review of the governance practices from time to time is necessary to assess the levels to which it is delivering the intended outcome, and where change is required. Ultimately, corporate governance is an investment of time, resources and commitment that delivers long term rewards, if implemented correctly.